SRP in brief: back to the future

But panellists at the SRP Europe 2021 virtual conference held between 1 and 4 March offered various solutions.

“During the last few years, we've been trying to deliver payoffs where the underlying interest rates are low in the future. Investors have been expecting higher returns because the assumption is that interest rates are higher,” said Clive Moore, managing director at Idad, told delegates at the Delivering value in a low interest environment session, held on 3 March. “By pushing the tenor slightly longer and using five or seven-year interest rates, we're able to deliver on the upside.”

We see a move away from dual index products to avoid correlation risk - Tim Mortimer, FVC

Tin Mortimer, managing director of FVC, explained in the Optimising financial valuations to improve investor experience panel that “fixed dividend indices have been popular for a couple of years now and we see a move away from dual index products to avoid correlation risk”. During the same session, Marcel Pronk, director securities marketing structured products, Van Lanschot Kempen, said he had seen some demand for synthetic dividend indices too, but there is not much innovation going on in his home market, the Netherlands.

The rise of thematic investments and custom indices and their role in driving structured product sales in 2020 where among the topics discussed by a panel of industry leaders on day two of the virtual conference. According to Juan Ramón Domínguez, head of structured equity product sales at BBVA, the Spanish bank maintains a simple approach to thematic investing. “We have trends in which investors can benefit by opting for short or medium-term structured products. Given the current low-rate scenario, you need to have 100% capital at risk,” he said.

In other news, Tom Leake, head of equity structuring for Europe, the Middle East and Africa at Goldman Sachs in London, has left the US bank to join Capstone Investment Advisors as head of solutions, also in London. Leake joined Goldman Sachs at the beginning of 2017 reporting to Guy Saidenberg, global head of sales, strats and structuring at Goldman who stepped down later that year to join Barclays as global head of distribution and structuring.

Swiss bank UBS’s has recently adopted the decrement dividend feature as part of its offering since it can impact the cost of options on those indices to either allow for a higher contingent coupon for phoenix autocallables or a higher participation rate for a growth product, as compensation for the decrement reducing the index return.

“UBS has recently utilised decrement indices in yield or defined return products when components of the decrement index are well known companies with established high cash flow business models and that have an expectation for double-digit return growth. Here the decrement feature improves the risk-return aspects of the product,” Eric Glicksman, UBS head of structured solutions for IB Global Markets, Americas, and GWM Markets, Americas said.

After failed attempts in the US and UK markets, SIP Nordic has launched its first products in South Africa with BNP Paris. SIP Nordic South Africa is headed by Peter Steele as managing director. Steele joined the firm in early 2020 to establish the firm’s sales distribution in South Africa. The firm is seeking to expand the existing offer for South African investors which is mainly focused on unit trusts, with a range of structured income plans. This is the third attempt by the Swedish firm led by Mats Halvorsen to expand beyond the Nordics.

One market that doesn’t often make structured product headlines is Thailand. Siam Commercial Bank has doubled its structured note offerings to 693 in 2020 with an increase in sales of 35.2% year-on-year (YoY) amid an overall scale-down in the country. The Thai bank's outstanding balance of structured notes dropped by 57.3% to THB434m (US$14.1m) as at the end of 2020 from its highest level in the year - THB1.02 billion recorded a quarter ago, which was close to the level posted in Q1 20, but 72.8% lower YoY, according SCB’s financial statements.

Phatra Securities and CGS-CIMB Securities retained their leading positions in the distribution ranking despite the slow-down in market activity, while SCB took over Thanachart Securities as the third most active distributor on the back of its market growth in 2020.

Thailand saw its overall structured note issuance in the market shrinking by 43.1% to 4,791 in 2020 YoY, which led to a 29.4% decrease of sales volume at THB25.2 billion, SRP data shows.

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